The Cost of Non-Compliance
Every month, audits and enforcement mandates are issued from various federal and state agencies that oversee industrial facilities. According to the Pipeline and Hazardous Material Safety Administration’s (PHMSA) summary of cases involving civil penalties, the first half of 2016 has resulted in 16 open cases with a proposed $3,070,200 in civil penalty fines. These cases were accompanied by a proposed compliance order (identifying actions the operator is required to take) and/or proposed civil penalties for these alleged violations.
As evident from the revolving door of compliance orders and penalty assessments, companies often take a non-compliance reactionary role rather than implementing proactive compliance measures. Preemptive compliance efforts and regulatory compliance tracking software programs are beneficial and often less expensive than agency fines.
According to the Ponemon Institute’s “True Cost of Compliance” 2011 report1, non-compliance is expensive. According to the study, the cost of compliance for 46 organizations averaged $3.5 million or $222 per employee. The extrapolated average cost of non-compliance for 46 organizations was significantly higher: nearly $9.4 million and $820 per employee.
Regulatory Compliance Tracking System
Adopting a regulatory compliance tracking system can streamline the process of compliance without increasing your employees’ workload. Regulatory compliance tracking software should:
- Enhance company-wide regulatory compliance
- Establish an effective means of corporate oversight
- Provide systemic consistency for compliance tasks
- Simplify documentation of compliance action items
- Reduced the likelihood of non-compliance and associated penalties
New Pipeline Regulations on the Horizon
Companies with pipeline operations often face multiple compliance mandates that require frequent monitoring and audits. As a result, compliance can be a significant cost. Recently, the “Protecting our Infrastructure of Pipelines and Enhancing Safety” (PIPES) Act of 2016 was signed into law. The act reauthorizes the PHMSA and related Department of Transportation programs through 2019 and enables the continuation of emergency response grants, one-call notification programs, state damage prevention programs, community pipeline safety information grants, and the pipeline integrity program. The PIPES Act of 2016 also reauthorizes the PHMSA to complete the remaining 15 Congressional mandates proposed with the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 20112. PHSMA has established a progress chart detailing the status of the initial 42 mandates.
Companies with applicable pipeline operations should be aware and monitor the following outstanding mandates in order to verify or align compliance initiatives (Note: For a full list, please refer to the PHMSA chart):
Automatic and Remote-Controlled Shut-Off Valves: Requires the use of automatic or remote-controlled shut-off valves on gas and liquid transmission pipelines constructed or entirely replaced after the date of the approved rule. The “Pipeline Safety: Amendments to Parts 192 and 195 to require Valve installation and Minimum Rupture Detection Standards” is projected to publish September 2016. The intent is to improve overall incident response.
Integrity Management Program Expansion and Class Location Replacement: PHMSA may extend a gas pipeline operator's 7-year reassessment interval by 6 months if the operator submits written notice with sufficient justification of the need for an extension. PHMSA should publish guidance on what constitutes sufficient justification. The "Pipeline Safety: Safety of Hazardous Liquid Pipelines" will be published October 2016 and the Pipeline Safety: Safety of Gas Transmission Pipelines proposed rule is still under evaluation.
Leak Detection: Final rules relating to leak detection on hazardous liquid pipelines and establishing leak detection standards set projected to be published October 2016.
Accident and Incident Notification: Reporting time should not be more than one hour after confirmed discovery. Notification requiring revision or confirmation of initial notification should be within 48 hours. Final rule projected to publish October 2016
Cost Recovery for Design Reviews: Setting up a cost recovery fee structure for design review of new gas and hazardous liquid pipelines with either overall design and construction costs totaling at least $2,500,000,000 or that contain new and novel technologies. Final rule, "Operator Qualification, Cost Recovery and Accident Notification", is projected to publish October 2016.
Excess Flow Valves: Issue regulations requiring the use of excess flow valves on new or entirely replaced distribution branch services, multi-family facilities, and small commercial facilities, if appropriate.
Maximum Allowable Operating Pressure (MAOP) Verification: Require tests to confirm the material strength of previously untested gas transmission pipelines in HCAs. Require operators to report any exceedance of MAOP within 5 days, and regulations to ensure safety of pipelines without records to confirm MAOP. The proposed rule "Pipeline Safety: Safety of Gas Transmission Pipelines" is currently under review.